New money

A company in distress generally needs cash before it needs a lower coupon, and a company that has run out of cash has run out of time to negotiate. New money is what buys the time, and whoever provides it writes the terms.

Those terms are consistent across deals. The new facility ranks ahead of the existing debt, either by agreement or by moving the borrowing to a different point in the group, it carries fees and a wide margin, and the providers take most of the equity of the reorganised business. That is not opportunism, it is the price of being the only party willing to put cash into a business everybody else has given up on.

Which is why the right to participate is fought over as hard as the recovery itself. A creditor excluded from the new money is diluted by the creditors who were let in, whatever its old claim ranked, so ad hoc groups negotiate for participation rights on a pro rata basis before they negotiate over cents in the euro.

It is also the honest link to the aggressive end of liability management. The transaction that primes existing lenders and the transaction that rescues the company are often the same transaction seen from two sides, and the difference between the two is usually whether every existing creditor was offered the same opportunity to participate.